Russia's services slump under rouble, rates to lowest since 2009

[MOSCOW] Russian service industries, such as hotels and storage, showed slowing activity for a fourth straight month as the weaker rouble and high interest rates erode spending.

The Russia Services Business Activity Index shrank to 43.9 in January, the lowest since May 2009, from 45.8 in December, according to data released by HSBC Holdings Plc and Market Economics on Wednesday. A reading below 50 signals contraction.

The world's biggest energy exporter is entering its first recession in six years as low oil prices compound damage from penalties imposed by the US and the European Union over the country's role in the Ukrainian conflict. Russia must prepare for a hard lending as the crisis may be worse than in 2008-2009, First Deputy Prime Minister Igor Shuvalov said last month.

"Firms again linked cost pressures to the rouble crisis as well as higher rents, fuel costs and interest rates," HSBC said in the report.

The rouble slid 13 per cent in January, after plunging 46 per cent last year. The rouble traded up less than 0.1 per cent at 65.1250 against the US dollar by 10:35am in Moscow, rallying this week after the central bank unexpectedly cut its benchmark rate Friday.

Policy makers, led by Governor Elvira Nabiullina, reduced the key rate by 200 basis points from 17 per cent, an 11-year high, following calls from officials and business leaders, including billionaire Oleg Deripaska and VTB Group head Andrey Kostin, to ease borrowing costs and aid the cooling economy.

Gross domestic product may contract 3 per cent this year if the oil price averages US$50 per barrel, Economy Minister Alexei Ulyukayev said Jan 3. Retail sales may contract 8 per cent, while investment in productive capacities are seen shrinking 13 per cent, according to Ulyukayev.

Manufacturing is also suffering, with the Purchasing Managers' Index contracting 47.6 last month, the lowest since June 2009, from 48.9 in December, HSBC said on Monday.

BLOOMBERG